How to Buy Bitcoins and How Does it Work

21 December 2021

With the growth of technology, there have been changes in how financial services and investment products are made available. Nearly all financial transactions and investments can now be made online.

Thanks to that, investors are spoiled with choices from traditional financial assets like mutual funds and stocks to emerging digital options like cryptocurrencies or bitcoins.

Because of its wildly volatile nature, Bitcoin is not for everyone, making it a little suspicious and confusing. So let us start by understanding the basics of bitcoin, how to buy it, and how it works?

What is Bitcoin?

Bitcoin is the first original cryptocurrency developed in 2009. It is also the best-known cryptocurrency among more than 5000 cryptocurrencies in existence today.

Bitcoin is considered to be the future of the financial market.

Bitcoin is a fascinating, new-age currency that exists only online without government interference as it is managed by a decentralized authority. Bitcoin is a virtual currency that allows users to spend money anonymously. Every transaction that has ever been made is publicly accessible on the public internet ledger to all.

How To Buy Bitcoin In India?

Those interested in buying bitcoins in India can purchase them from a reputed cryptocurrency operating exchange like Zebay.

Following are the steps to buy bitcoin in India.

You can get your KYC done by submitting your PAN card and Aadhar Card details.

After submitting your details, you can place an order on the cryptocurrency exchange for purchasing bitcoin.

You can directly transfer the amount from your bank account into Zebay.

You can choose any other way of purchasing bitcoin by using standard digital methods like NEFT, RTGS, debit, or credit cards.

How Does It Work?

As we have mentioned before, it is a virtual currency that changes hand over the internet. Each bitcoin that is saved or purchased is therefore registered in a wallet ID. This means that bitcoins are transferred from one wallet ID to another party. But one aspect that should be highlighted here is that just its wallet ID is published in the public record and kept instead of the names of owners and sellers by keeping them anonymous. This public ledger is also called a blockchain.

Is Bitcoin Anonymous?

No, it is not entirely anonymous once you have purchased bitcoins or stored them in your wallet ID. However, if you take a closer look, these digital currencies can reveal a whole lot more information about you than you might think. The problem lies with your wallet ID, where the bitcoin is stored. Anonymity comes from being nameless without a name, but instead, the wallet ID gives you a fake name- a pseudonym. So instead of your real name, you get a scrambled word with digits and letters, but the meaning is the same.

Any professional hacker or government official agencies with proper technology can track your wallet down as the market is highly unregulated; anyone considering it should be ready to lose their entire investment.

How Much Is Bitcoin Worth?

Are you curious to know how much is one single BTC worth? At the time of writing, 1BTC= 62,375 dollars. As the bitcoins are already capped at 21 million by Satoshi Nakamoto- an anonymous individual or group of people the real identity behind bitcoin is still a mystery.

Yes, unlike other paper currencies, produced on demand and supply by the government, the developers of bitcoins limit its existence. As a result, only 21 million bitcoins could ever exist. This is called the hard cap, which is encoded with the source code of bitcoins and enforced by network nodes.

In addition, Elon Musk’s recent news of participation in cryptocurrency on his Twitter feed made investors enthusiastic about bitcoins and ways to purchase them.

Now that you have learned how to purchase bitcoin, let us know more about the jargon used, like bitcoin mining. Sounds interesting, isn’t?

What is Bitcoin Mining?

Bitcoin mining is the method via which bitcoin is released. In general, a new block is added to the blockchain by solving computationally complex puzzles for mining. Miners use extremely powerful, energy-driven computers to mine bitcoins.

A government chooses when to produce and distribute money using paper money, but Bitcoin has no central regulating body, allowing anyone to start mining.

If you think mining is easy and can accomplish it entirely on your own. You are wrong. It is not an easy way to get rich. Furthermore, it is possible that you would end up spending more on specialized computer equipment than the bitcoin you could mine would be worth.

So, 'mining pools' are also called groups wherein they split their computing powers, and once the puzzle is solved, the winnings are divided based on their contribution.

What is Bitcoin Halving?

After bitcoin mining, let us study another most used jargon in the world of bitcoins, which is bitcoin halving.

In addition, every miner is rewarded with a few bitcoins after mining each block of bitcoin. In 2009, 50 bitcoins were rewarded for every block on the chain. After the first halving, It was 25, then 12.5, and then 6.25 bitcoins per block as of 11 May 2020.

Following the mining of 210,000 or about every four years, the Bitcoin miners' block reward for processing transactions is halved. This reduces the rate at which new bitcoins are released. It is a technique for Bitcoin to use synthetic inflation, split every four years until all Bitcoins are distributed.

It is said this system will continue till 2140. However, as the total maximum supply is already capped at 21 million, this system ensures miners still get an incentive to mine and keep the network going.

As of August 2021, over 18,799,131 million bitcoins are already in circulation, leaving just 2,200,869 million unused in mining.

Is Bitcoin Legal In India?

Yes, buying and selling of cryptocurrencies within the county are valid. But it is relatively risky, especially when it comes to taxes. There is no government body to look after it or protect it, and there is no escape from paying taxes on cryptocurrency investment gains.

What are the Risk Factors Involved with Bitcoins?

Since you know the basics of bitcoins, you may be wondering whether it is a suitable investment for you. However, before you dive, there are a few things to consider.

1. Bitcoin Mining is Expensive:

   If you are serious about mining, you will have to buy software to calculate all 64-digit codes that lead to a single bitcoin.

2. Securing Your Wallet:

   Another risk factor involved with bitcoins is protecting your wallet online. It comes with significant security concerns. When it comes to choosing a wallet, you have several options. I.e., hot wallets and cold wallets. Hot wallets can be used for storing small amounts of cryptocurrency. In comparison, cold wallets are used to store more extensive holdings for long-term durations.

3. Bitcoin is not Regulated:

   Having bitcoin is not like investing in mutual funds or stock markets. Due to its unregulated nature, the prices of bitcoins constantly fluctuate. So if you are risk-averse and you must consider investing in safer investment options like mutual funds.

4. Limited Supply:

   There is no clear picture of the future once it reaches its maximum mining capacity in 2140. It is difficult to predict what effect it will have on the financial ecosystem.

5. Payments are Irreversible:

   Bitcoin payments cannot be reversed. It is only possible to compensate the transaction by the person who has received the bitcoin in their wallet. Furthermore, since bitcoins are not entirely anonymous, everyone may view any Bitcoin address or wallet balance and transactions. You must thus establish solid privacy procedures.

Should You Invest or Buy Bitcoins?

We recommend considering other safer and legal options governed by the SEBI and approved by RBI. Bitcoin is an experimental new currency in which you may experience severe issues of internet theft, increased fees, volatile fluctuations in the money as it is not an official currency in India. Therefore, it is safe to say not to trade or invest in unknown currencies.

Invest in Mutual Fund as compared to Bitcoins

The approach for investing in mutual funds is different than investing in cryptocurrencies. While there are pros and cons in investing in mutual funds, it is a secured and transparent investment governed and regulated by SEBI compared to bitcoin.

You can invest in mutual funds based on risk tolerance to reach your financial objectives. Depending on the type of mutual fund scheme you select, you can expect stable and consistent returns. There are options available for conservative and aggressive investors depending on the investment strategy and risk horizon.

With the help of expert opinions taken by a market specialist at MFonline, they can guide you to achieve long-term returns and sustainable growth in funds value.

Conclusion

Money is too vital to run unregulated, which involves so much danger. You should continue to invest in traditional ways to achieve steady returns until you are sure in your study.

Frequently Asked Questions

What is the best way to buy Bitcoin in India?

There are many crypto exchanges in India where you can deal, trade, and sell bitcoins. Some of the successful exchanges are CoinDCX, CoinSwitch, Zebpay, WazirX.

Can I Convert Bitcoin To Cash In India?

No, it is not possible right now. As of now, few businesses and individuals are that deal and take payment in bitcoin. You must realize that digital currencies are volatile when you wish to cash out Bitcoins, and their prices are changing considerably at all times. Your conversion schedule plays a crucial role in this instance. If your timing is inappropriate, you might lose all of your investment.

Can I Invest 500 rupees in Bitcoin?

Yes, you can start buying bitcoin from as low as Rs. 500.

How Do Beginners Buy Bitcoins?

On most exchanges, you will need a bank account, debit card, or credit card. For buying in significant quantities, it is recommended to open a bank account as the transfer costs are usually lower. At the same time, debit and credits are recommended for smaller purchases as it carries higher transfer costs.

Disclaimer: All Mutual Funds are subject to market risk. Please read all scheme-related documents carefully.